PESSIMISM LEADING INTO END OF FINANCIAL YEAR

 

The results from Dun & Bradstreet’s February Business Expectations Survey have highlighted a sharp decline in expectations for the second quarter, with businesses issuing gloomy forecasts for the three-month period to June 2016.

Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, has fallen to 13.2 points for the second quarter of 2016, down 5.7 points from 18.9 points for Q1 2016, and a fall of 6.9 points from 20.1 points for Q2 2015. Nonetheless, it is significantly higher than the 10-year average of 7.0 points.

The Business Expectations Index is an aggregate of the survey’s
measures of sales, profits employment and investment expectations.

According to Stephen Koukoulas, Economic Advisor to Dun & Bradstreet, “the slippage in business expectations is across the board with expected sales, profits, employment and new capital expenditure slipping to their lowest level in around two years. It is likely that the global financial market ructions in the early part of 2016 and now the policy uncertainty associated with the upcoming election could be dampening the spirits for the business sector.”

In particular, the Profit Expectations Index, which plunged to 11.8 points, is at its lowest point since late 2012. Sales (25.4 points) and Employment (7.7 points) expectations also fell significantly, dropping to lows not seen since 2013, while the Capital Investment Index fell to a single digit figure (7.8 points) for the first time in more than two years. The only increase was seen in the Selling Prices Index, which rose 0.3 points to 15.5 points.

 

 

 

 

 “The softening in expectations is not yet a concern for the economy. Interest rates are at historical lows, there are clear signs of a turn-around in commodity prices which if sustained, should be a positive for the economy, and the Australian dollar remains at a level which is boosting the competitiveness of the export sector.

“Of course, any further slippage in expectations in the months ahead would spark concerns about the growth momentum in the economy, so the next few surveys will be of vital importance”, Mr Koukoulas noted.

 

 

Head of Group Development for Dun & Bradstreet, Adam Siddique, was similarly circumspect on the softening results.

“Our view of the economic fundamentals remains sufficiently sound such that we aren’t ringing the alarm bells yet, however, several recent high profile corporate administrations and profit downgrades appear to be weighing on business sentiment leading into the end-of-financial year.”

“Supporting this is the closure of the gap we have previously recorded between business expectations and actual results, suggesting businesses have an increasingly accurate grasp of forecast trading conditions and their underlying impact on activity,” Mr Siddique added.

 

 

 

 

 

On an industry-by-industry level, some particularly pessimistic figures came from the Services sector, which saw sharp declines across every index, particularly Sales expectations, which plunged from 36.5 points to 14.7 points. There was some positivity from the Construction sector: although Sales, Profits and Selling Prices expectations all fell slightly, the Employment Expectations Index rose from 6.2 points to 13.9 points, while Capital Investment expectations jumped from 2.1 points to 5.6 points.

 

 

 

 

 

The Actuals Index, however, fared better, with the figure improving from 11.0 points to 12.5 points, marking its third consecutive increase. The latest figure, based on statistics from the fourth quarter of 2015, also stands significantly higher than the 10-year average of 1.1 points. In particular, the Actual Employment Index improved from 5.5 points to 7.9 points, while Actual Sales increased from 19.1 points to 23.1 points.

 

 

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Contacts:

 

James Malkin

Stephen Koukoulas

MalkinJ@dnb.com.au

Stephen@thekouk.com

+61 3 9828 3273

+61 467 647 508


The latest D&B Business Expectations Survey shows:

Expectations index for the June quarter 2016:

·         The Employment Expectations Index has decreased to 7.7 points, down from 12.0 points in the previous quarter and 16.8 points a year ago.

·         The Sales Expectations Index has dropped to 25.4 points, down from 32.7 points in the previous quarter and 32.7 points a year ago.

·         Profits expectations for the quarter have fallen to 11.8 points, compared to 18.5 points in the previous quarter and 18.1 points at the same time last year.

·         Plans for Capital Investment are also down, with the index at 7.8 points, from 12.6 points in the previous quarter and 12.6 points in Q2 2015.

·         The Selling Prices Expectations Index has increased to 15.5 points, up from 15.1 points in the previous quarter but down from 23.5 points at the same time last year.

Issues expected to influence operations in the June quarter 2016:

·         59.5 per cent of businesses are more optimistic about growth in the next 12 months compared to 2015, while 32.9 per cent are less optimistic and 7.6 per cent are undecided.

·         Consumer confidence (40.7 per cent) is identified as the issue most likely to influence business operations in the next quarter, followed by cash flow (14.9 per cent) and level of the Australian dollar (11.5 per cent).

·         27.6 per cent of businesses see weak demand for their products and services as the biggest barrier to growth in the year ahead, while 14.4 per cent see utilities and operational costs as the biggest barrier.

·         35.5 per cent of businesses reported having a customer or supplier that became insolvent, or was otherwise unable to pay them in the past year.

·         50.9 per cent of businesses would choose to miss payments to trade suppliers if unable to pay all their bills on time, followed by a business credit card (16.2 per cent).

·         25.4 per cent of businesses would prefer a higher Australian dollar and 18.5 per cent a lower dollar, while 53.7 per cent think that it doesn’t matter. 2.4 per cent are unsure.

·         13.7 per cent of businesses intend to seek finance or new credit in the quarter ahead to help their business grow, while 78.1 per cent will not, and 8.2 per cent are undecided.

Actual results reported for the December quarter 2015:

·         Actual employment for the December quarter was up significantly, with the index at 7.9 points, compared to 5.5 points in the previous quarter, but down from 12.4 points last year.

·         Sales activity was up at 23.1 points, compared to 19.1 points in the previous quarter, but down from 24.7 points last year.

·         The Actual Profits Index decreased from 8.5 points in Q3 2015 to 7.6 points, and 11.6 points recorded at the same time last year.

·         Capital Investment activity increased to 11.5 points, up from 10.8 points in the previous quarter, but down from 12.5 points last year.

·        Selling prices were down slightly, with the index at 12.5 points compared to 13.3 points in the previous quarter and 16.4 points last year.

 

 

 


About Dun & Bradstreet
Established in 1887, Dun & Bradstreet is Australia and New Zealand's longest established credit information bureau. Backed by its extensive financial database, D&B helps businesses to make informed credit decisions, and consumers to access personal credit information.

D&B works across the entire credit lifecycle to deliver data-driven solutions in sales and marketing, credit reporting and debt management. Through analysis of financial and behavioural information, D&B also provides current and predictive assessments of the economy, business conditions and credit activity.


About the survey

 

Each month business owners and senior executives representing the manufacturing; wholesale; retail; construction; transport, communications and utilities; finance, insurance and real estate; and services sectors across Australia are asked if they expect increases, decreases or no changes in their upcoming quarterly sales, profits, employment, capital investment and selling prices. Since its introduction in Australia in 1988, the survey has proven to be a highly reliable measure of economic performance.

 

The index figures used in the survey represent the net percentage of survey respondents expecting higher sales, profits, etc., compared with the same quarter of the previous year. The indices are calculated by subtracting the percentage of respondents expecting decreases from the percentage expecting increases. The Business Expectations Index is a composite of four of the five indices surveyed: sales, profits, employment and capital investment.

 

Methodology

 

Each month D&B asks a sample of executives if they expect an increase, decrease or no change in their quarter-ahead sales, profits, employees, capital investment and selling prices compared with the same quarter a year ago.

 

The executives are also asked for actual changes over the twelve months to the latest completed quarter.

 

The Australian survey began in March 1988 obtaining some 900 responses in the third month of each quarter. Since the middle of 1999, the survey has been conducted monthly, initially with about 300 responses each month. From September 2000, responses have been obtained from 400 executives each month.

 

From July 2005, to simplify the interpretation of the survey data, the results have been presented as a sequence of preliminary, interim and final indexes. The 400 responses from the first month of each quarter give preliminary estimates of the quarter-ahead expectations and the quarter behind actual indexes. The 400 responses from the second month of the quarter are combined with those from the first month as interim estimates of the indexes based on 800 responses. The 400 responses from the third month are combined with those from the first two months to give the final expectations and actual indexes based on all 1,200 responses obtained during each quarter.

 

In this issue, the interim indexes for the latest quarters are based on approximately 800 responses obtained during January and February 2016.

 

 

 

 

 

Charts and tables

 

It is common practice to present the results of business expectations surveys as indexes showing the net balance of the positive and negative responses. However, this method of aggregating responses loses relevant information about the relative proportions and rates of change of the two (positive and negative) groups.

 

Accordingly, the detailed charts at the top of pages seven to 11 in the D&B National Business Expectations Survey show separately the positive and negative components of each of the various indexes. These charts help provide a better insight into the expectations and performance of Australian business than that shown by movements in the simple aggregation of the positive and negative responses.

 

The aggregate net balance indexes are shown in the charts at the bottom of pages six to 10.

 

About Dun & Bradstreet

 

Established in 1887, Dun & Bradstreet is Australia and New Zealand's oldest credit information bureau. Backed by its extensive financial database, D&B helps businesses to make informed credit decisions, and consumers to access personal credit information.

D&B works across the entire credit lifecycle to deliver data-driven solutions in sales and marketing, credit reporting and debt management.

 

Through analysis of financial and behavioural information, D&B also provides current and predictive assessments of the economy, business conditions and credit activity.


Sales outlook

(Quarterly Net Index) (25.4 points, down from 32.7)

The positive and negative components of the D&B net indexes are shown in the adjacent chart.

 

Expectations

The June quarter 2016 Sales Expectations Index is 25.4 points, down from 32.7 points in the previous quarter and 32.7 points in the year prior.


The index is now 11.4 points above its 10-year average of 14.0 points.

 

38.7 per cent of businesses expect an increase in their sales, while 13.3 per cent forecast a decrease, compared to the same time last year.

 

Actual performance

The Actual Sales Index for the fourth quarter of 2015 is 23.1 points, up from 19.1 points in the previous quarter but down from 24.7 points a year earlier.

 

41.0 per cent of firms reported increased sales in the September quarter and 17.9 per cent had decreased sales compared to the previous year.

 





Profits outlook

(Quarterly Net Index) (11.8 points, down from 18.5)

The positive and negative components of the D&B net indexes are shown in the adjacent chart.

 

Expectations

The outlook for profits in the June 2016 quarter is an index of 11.8 points, down from 18.5 points in the previous quarter and 18.1 points last year.

 

The outlook for profits is 6.2 points above the 10-year average index of 5.6 points.

 

29.5 per cent of businesses expect an increase in their profits during the quarter ahead, while 17.6 per cent forecast a decrease, compared to last year.

 

Actual performance

The Actual Profits Index for the December 2015 quarter is 7.6 points, down from 8.5 points in the previous quarter and 11.6 points recorded a year earlier.

27.0 per cent of businesses increased their profits, while 19.4 per cent experienced a decrease.

 

 




Employment outlook

(Quarterly Net Index) (7.7 points, down from 12.0)

The positive and negative components of the D&B net indexes are shown in the adjacent chart.

 

Expectations

The employment outlook for the June quarter 2016 has decreased to 7.7 points, down from 12.0 points in the previous quarter and 16.8 points a year earlier.

 

The outlook for employment is 5.6 points above the 10-year average index of 2.1 points.

 

Some 17.4 per cent of executives expect to employ more staff compared to a year ago, while 9.7 per cent expect to decrease their staff numbers.

 

Actual performance

The Actual Employment Index for the December 2015 quarter is 7.9 points, up from 5.5 points in the previous quarter but down from 12.4 points a year earlier.

 

In the December quarter 2015, 21.8 per cent of businesses hired new staff, compared to the 13.8 per cent that reduced their employment levels.

 

 



Capital Investment outlook

(Quarterly Net Index) (7.8 points, down from 12.6)

The positive and negative components of the D&B indexes are shown in the adjacent chart.

 

Expectations

The capital investment outlook for the June quarter 2016 is 7.8 points, down from 12.6 in the previous quarter and 12.6 points last year.

 

The outlook for capital investment is 1.7 points above the 10-year average index of 6.1 points.

 

While 18.1 per cent of businesses expect an increase in their investment level, 10.3 per cent forecast a decrease compared with a year earlier.

 

Actual performance

For the December quarter 2015, the actual index for investment is 11.5 points, up from 10.8 in the previous quarter but down from 12.5 a year ago.

 

20.1 per cent of firms increased their capital investment in the December quarter, while 8.6 per cent decreased capital spending.

 

 





Selling Prices outlook

(Quarterly Net Index) (15.5 points, up from 15.1)

The positive and negative components of the D&B net indexes are shown in the adjacent chart.

 

Expectations

The Selling Prices Expectations Index for the June quarter 2016 is 15.5 points, up from 15.1 points in the previous quarter but down from the 23.5 points recorded a year earlier.

 

The outlook for selling prices is 12.3 points lower than the 10-year average of 27.8 points.


The proportion of firms expecting to have higher selling prices in the quarter ahead is 24.5 per cent, with 9.0 per cent expecting to have lower prices.

 

Actual performance

At 12.5 points, the actual Selling Prices Index for the December 2015 quarter is down from 13.3 points in the previous quarter and 16.4 points last year.

 

22.4 per cent of businesses increased the level of their selling prices, while 9.9 per cent had decreased, compared to the same time the previous year.